Masters Of War

Come you masters of war You that build all the guns You that build the death planes You that build all the bombs You that hide behind walls You that hide behind desks I just want you to know I can see through your masks. You that never done nothin' But build to destroy You play with my world Like it's your little toy You put a gun in my hand And you hide from my eyes And you turn and run farther When the fast bullets fly. Like Judas of old You lie and deceive A world war can be won You want me to believe But I see through your eyes And I see through your brain Like I see through the water That runs down my drain. You fasten all the triggers For the others to fire Then you set back and watch When the death count gets higher You hide in your mansion' As young people's blood Flows out of their bodies And is buried in the mud. You've thrown the worst fear That can ever be hurled Fear to bring children Into the world For threatening my baby Unborn and unnamed You ain't worth the blood That runs in your veins. How much do I know To talk out of turn You might say that I'm young You might say I'm unlearned But there's one thing I know Though I'm younger than you That even Jesus would never Forgive what you do. Let me ask you one question Is your money that good Will it buy you forgiveness Do you think that it could I think you will find When your death takes its toll All the money you made Will never buy back your soul. And I hope that you die And your death'll come soon I will follow your casket In the pale afternoon And I'll watch while you're lowered Down to your deathbed And I'll stand over your grave 'Til I'm sure that you're dead.------- Bob Dylan 1963

Tuesday, November 30, 2010

By Jeff Gates
What is Tel Aviv to do now that it's known Israelis and pro-Israelis 'fixed' the intelligence that induced the U.S. to war in Iraq?
Fool me once, shame on you. Fool me twice, shame on me. Con me consistently for six decades and the relationship is over, as is Israel’s credibility as a legitimate nation state.
Tel Aviv knows this. But what can the Zionist state do about it? Answer: Wikileaks.
Why now? Misdirection. Shine the spotlight on Washington to take it off Tel Aviv. That’s good old-fashioned psy-ops. And challenge the credibility of the U.S. That’s Wikileaks.
Any credible forensics would start by asking: to whose benefit? Then look to means, motive and opportunity plus the presence of stable nation-state intelligence inside the U.S.
Other than Israel, who else is a credible candidate? Notice how quickly Israel’s role in the peace process vanished from the news. Now it’s Iran, Iran and more Iran. To whose benefit?
Tel Aviv knows that the phony intelligence on Iraq leads to those skilled at waging war “by way of deception”—the motto of the Israeli Mossad. Wikileaks are noteworthy for what’s missing: the absence of any material damaging to Israeli goals.
But still Tel Aviv faces an unprecedented peril: transparency. Americans know they were duped. And Israel rightly fears that Americans will soon realize by whom.Tepid Support will not Suffice
Obama has behaved as anticipated by those who produced his presidency. Anyone surprised at the lack of change in U.S. policy in the Middle East fails to grasp the power of the Israel lobby.
Did he hesitate to support their latest Israeli strategy for scuttling peace negotiations? Absent peace, the U.S. will continue to be the target of those outraged at America’s unflinching support for Israel’s thuggish behavior in pursuit of its expansionist goals.
Confirming the lobby’s influence, Netanyahu announced he would not agree to halt settlements on Palestinian land until Obama reduced to writing a $3 billion bribe.
In return for a proposed 90-day freeze, what form of bribe will America provide? Twenty F-35 jets at $150 million each plus parts, maintenance, training and armaments.
That’s $231 million per week or $1,373,626 per hour. What will the U.S. receive in return? A temporary partial freeze on settlements. How many more times can this ruse work?
Israel has evaded a peace agreement since it drove Palestinians from their land in 1948 and seized more land in 1967 to shape today’s geopolitics.
Should Israel reach an agreement with the Palestinians, Secretary of State Hillary Clinton proposes a "comprehensive security agreement." At what cost no one knows. The U.S. Congress has already budgeted $30 billion for Israel over 10 years. This latest $3 billion is on top of that.
That doesn't include the cost to American credibility posed by an offer to veto U.N. recognition of Palestine as a state. And a pledge Never Again to pressure Israel on settlements. Plus the freeze omits East Jerusalem where Tel Aviv insists on moving ahead with new housing starts.Timing is Everything
By scheduling its latest incursion into Gaza between Christmas 2008 and the January 2009 Obama inaugural, Tel Aviv ensured only muted opposition during political down time in the U.S. Thus it came as no surprise to see an agent provocateur operation on Thanksgiving Day 2010 as Israel demolished a West Bank Mosque and a Palestinian village.
After seven hours of nonstop talks, Hillary Clinton praised Netanyahu as a "peacemaker." In return, he agreed only to "continue the process." Meanwhile, U.S. elections marked a major victory for Israel when incoming Republican Majority Leader Eric Cantor, a Jewish Zionist, announced that the new majority would "serve as a check on the Obama administration."
The Israel lobby has good reason to gloat. Confirming ongoing duplicity, Israeli Foreign Minister Avigdor Lieberman proclaimed: "a permanent agreement is impossible."

Wikileaks’ release of confidential diplomatic cables provides Israel an opportunity to undermine U.S. relations worldwide while also inflicting lasting damage on U.S. interests in the Middle East. After this, what nation would trust the U.S. to maintain a confidence?
In October, Turkey asked that the U.S. not share intelligence with Israel. Now who dares share intelligence with the U.S.?
This may signal the beginning of the end for the Obama presidency. His domestic policy failures are eclipsed by his failures in foreign policy.
This may also signal pre-staging for the 2012 presidential primary with a weakened Obama forced to name Clinton as his running mate or stepping aside so she can lead the ballot.
Her 2008 presidential campaign promised recognition of Israel as a “Jewish state” and promised an “undivided Jerusalem as the capital.” Tel Aviv was elated. A second Clinton presidency would ensure another victory for Israel—and no peace.
Israeli psy-ops typically serve multiple purposes. Wikileaks is no exception.- Jeff Gates is author of Guilt By Association—How Deception and Self-Deceit Took America to War. He contributed this article to PalestineChronicle.com. Visit: www.criminalstate.com.

Morgenson points out two cases in federal bankruptcy court in Atlanta in which a U.S. trustee stepped in and asked bankruptcy judges to deny requests from Wells Fargo and Chase to allow them to proceed with foreclosure. In both cases, Walton filed motions saying that the bank had “failed to allege sufficient facts from which the Court can conclude that it is in fact the authorized agent” of the note holder.

Issues of a note’s proper transfer and the bank’s right to enforce a foreclosure were also raised when a U.S. bankruptcy judge earlier this month rejected an attempt by Bank of America to foreclose on a New Jersey homeowner. According to a piece in Bloomberg today, the judge ruled that the bank had failed to properly transfer the note to its true owner [3] and therefore did not have legal standing to enforce the foreclosure.

As part of that case, Bank of America employee Linda DeMartini testified [4] [PDF] that it was standard practice for Countrywide—which was acquired by Bank of America—to sell mortgage loans without physically transferring the note to the new owner.

Countrywide “transferred the ownership, not the physical documents,” DeMartini testified, noting that the practice was “normal” for the company. The judge, in her ruling [5] [PDF], wrote that “the fact that the owner of the note, the Bank of New York, never had possession of the note, is fatal to its enforcement," calling into question whether other cases that were similarly handled could face similar challenges.

An attorney working on behalf of the bank told Bloomberg that DeMartini had been wrong about the company’s practice:

It was the policy of Countrywide Financial Corp., acquired by Bank of America in July 2008, to deliver notes as called for in its securitization contracts, according to Larry Platt, an attorney at K&L Gates LLP in Washington designated by the bank to answer questions about the case.

“This particular employee was mistaken in what she said,” Platt said in a telephone interview.

While judges and trustees may have caught a few of such cases and tried to stop them, foreclosures without proof of standing may be surprisingly common.

I came to the latest uproarious US diplomatic history with the deepest cynicism. And yesterday, in the dust of post-election Cairo - the Egyptian parliamentary poll was as usual a mixture of farce and fraud, which is at least better than shock and awe - I ploughed through so many thousands of American diplomatic reports with something approaching utter hopelessness. After all, they do quote President Hosni Mubarak as saying that "you can forget about democracy," don't they?
It's not that US diplomats don't understand the Middle East; it's just that they've lost all sight of injustice. Vast amounts of diplomatic literature prove that the mainstay of Washington's Middle East policy is alignment with Israel, that its principal aim is to encourage the Arabs to join the American-Israeli alliance against Iran, that the compass point of US policy over years and years is the need to tame/bully/crush/oppress/ ultimately destroy the power of Iran.
There is virtually no talk (so far, at least) of illegal Jewish colonial settlements on the West Bank, of Israeli "outposts", of extremist Israeli "settlers" whose homes now smallpox the occupied Palestinian West Bank - of the vast illegal system of land theft which lies at the heart of the Israeli-Palestinian war. And incredibly, all kinds of worthy US diplomats grovel and kneel before Israel's demands - many of them apparently fervent supporters of Israel - as Mossad bosses and Israel military intelligence agents read their wish-list to their benefactors.
There's a wonderful moment in the cables when the Israeli Prime Minister, Benjamin Netanyahu, explains to a US congressional delegation on 28 April last year that "a Palestinian state must be demilitarised, without control of its airspace and electro-magnetic field [sic], and without the power to enter into treaties or control its border". Well goodbye, then, to the "viable" (ergo Lord Blair of Isfahan) Palestinian state we all supposedly want. And the US Congress lads and ladies appear to have said nothing.
Instead, in The New York Times, we read through the Wikileaks files for the best quote. Here is Saudi King Abdullah, via his ambassador in Washington (a dab hand with the press), sayingthat Abdullah believes America must "cut of the head of this snake" - the snake being Iran or Ahmadinejad or Iranian nuclear facilities, or whatever.
But the Saudis are always threatening to cut off the head of their latest snakes. In 1982, Yasser Arafat said he would cut off Israel's left arm after its invasion of Lebanon, and then the Israeli Prime Minister Menachem Begin said he would cut off Arafat's right arm. And I suppose that when it is revealed to us - as, alas, it is in these Wikileaks papers - that unsuitable applicants for US visas are called by American diplomats "visa vipers", we can only conclude that snakes are much in demand.
The problem is that for decades, Middle East potentates have been threatening to chop off the heads of snakes, serpents, rats and Iranian insects - the latter a favourite of Saddam Hussein who used US-supplied "insecticide" to destroy them, as we all know - while Israeli leaders have called Palestinians "cockroaches" (Rafael Eitan), "crocodiles" (Ehud Barak) and "three-legged beasts" (Begin).
Tears of laughter, I have to admit, began to run down my face when I read the po-faced US diplomatic report from Bahrain that King Hamad - or "His Supreme Highness King Hamad" as he insists on being called, in his Sunni dictatorship with a Shia majority and a kingdom slightly larger than the Isle of Wight - had announced that the danger of letting the Iranian nuclear programme go on was "greater than the danger of stopping it".
That wonderful Palestinian journalist Marwan Bishara was right when he said at the weekend that these US diplomatic papers were of more interest to anthropologists than political scientists; for they are a record of a deviant way of thinking about the Middle East. If King Abdullah (the crumbling Saudi version, as opposed to the Plucky Little Jordanian King version) really called Ahmadinejad Hitler and Sarkozy's adviser called Iran "a fascist state", it shows only that the US State Department is still obsessed with the Second World War.
I loved the stunning report of a visitor to the US embassy in Ankara who told diplomats that Iranian Supreme Leader Ali Khamenei was dying of leukemia. Not because the poor old boy is a cancer victim - he is not - but because this is the same old nonsense we've been peddled about the Middle East's recalcitrant leaders for so many years. I remember the days when American or British "diplomatic sources" insisted that Gaddafi was dying of cancer, that Khomeini was dying of cancer (long before he died), that Khomeini was already dead of cancer - again, long before he died - that the Palestinian contract killer Abu Nidal was dying of cancer, 20 years before he was murdered by Saddam. Even in Northern Ireland, Britain's half-baked spooks told us that the Protestant Vanguard leader William Craig was dying of cancer. And of course, he lived on, like the awful Gaddafi, whose Ukrainian nurse is described by the Americans as "voluptuous". Of course she is. Aren't all blonde dames "voluptuous" in such descriptions?
One of the most interesting reflections - dutifully ignored by most of the pro-Wikileaks papers yesterday - came in a cable on a meeting between a US Senate delegation and President Bashar Assad of Syria earlier this year. America, Assad told his guests, possessed "a huge information apparatus" but lacked the ability to analyse this information successfully. "While we lack your intelligence abilities," he says in rather sinister fashion, "we succeed in fighting extremists because we have better analysts ... in the US you like to shoot [terrorists]. Suffocating their networks is far more effective." Iran, he concluded, was the most important country in the region, followed by Turkey and - number three - Syria itself. Poor old Israel didn't get a look in.
Of course President Hamid Karzai of Afghanistan is "driven by paranoia" - so is everyone in that land, including most of Nato and especially theUnited States - and naturally the President of Yemen pretends to his own people that he is killing al-Qa'ida representatives when we all know it's General David Petraeus's warriors who are the culprits. Muslim leaders have constantly been claiming American military prowess against other Muslims as their own work.
Of course, we must not be too cynical. I loved the American diplomatic report (from Cairo, of course, not from Tel Aviv) which said that Netanyahu was "elegant and charming ... but never keeps his promises". But doesn't that apply to half the Arab leaders as well?
And then we come to the dank and frightening reporting of a meeting between Andrew Shapiro, "Assistant Secretary of State for the US Political-Military Bureau", meeting with Israel's spooks almost exactly a year ago. Israel was unable to protect its Cessna Caravan and Raven unmanned pilotless drones over southern Lebanon, admits Mossad. (Hezbollah will be obliged for this nugget.) An Israeli "J5" Colonel Shimon Arad waffles on upon the dangers of "Hezbollahstan" and Hamastan" and the "internal political deadlock" in Lebanon - there wasn't then, but there is now - and about Lebanon as a "volatile military arena" and the country's "susceptibility to outside influences, including Syria, Iran and Saudi Arabia".
And, of course - though Colonel Arad doesn't mention this - American influence and Israeli influence and French influence and British influence and Turkish influence. Shapiro "cited the need to provide an alternative to Hezbollah" - the Costa Rican police force, perhaps? - and suggested that the Lebanese army would come to the defence of Hezbollah (unlikely, in the circumstances).
There's a priceless denial of the UN Goldstone report on the Gaza atrocities of 2008-09 by reserve Major General Amos Gilad, who says that the document's criticisms of Israel are "baseless" because the Israeli military made 300,000 phone calls to houses in Gaza ahead of strikes ... to prevent civilian casualties". Poor old Shapiro seems to have reacted in silence. That would be a phone call to a fifth of the entire Palestinian population of Gaza, kids, babies and all. And even then they killed 1,300 Palestinians, most of them civilians. Of course the Palestinian Authority of the bland Mahmoud Abbas didn't want to take over this killing field after the Israelis had won - another offer made by Israel with US knowledge - because Israel didn't win. It didn't even find its missing soldier in the tunnels of Gaza.
There's a symbolic moment when Sheikh Mohamed bin Zayed al-Nahyan of Abu Dhabi - not to be compared to the "distant and uncharismatic personage" of his brother Khalifa - worries about Iran in front of the US ambassador Richard Olsen who then suggests that he has "a strategic view of the region that is curiously close to the Israeli one". But of course he does. Line them up. They will pray in their golden mosques, these kings and emirs and generals, buying more and more American weapons to protect themselves from the "Hitler" of Tehran - better, I suppose, than the 2003 Hitler of the Tigris or the 1956 Mussolini of the Nile - and entreat God that they will be saved by the might of America and Israel. I can't wait for the next episode in this fantasy.http://www.independent.co.uk/opinion/commentators/fisk/robert-fisk-now-we-know-america-really-doesnt-care-about-injustice-in-the-middle-east-2146971.html

Since 9-11, the US government, through Presidents Bush and Obama, has increasingly told the US public that “state secrets” will not be shared with citizens. Candidate Obama pledged to reduce the use of state secrets, but President Obama continued the Bush tradition. The Courts and Congress and international allies have gone meekly along with the escalating secrecy demands of the US Executive.
By labeling tens of millions of documents secret, the US government has created a huge vacuum of information.
But information is the lifeblood of democracy. Information about government contributes to a healthy democracy. Transparency and accountability are essential elements of good government. Likewise, “a lack of government transparency and accountability undermines democracy and gives rise to cynicism and mistrust,” according to a 2008 Harris survey commissioned by the Association of Government Accountants.
Into the secrecy vacuum stepped Private Bradley Manning, who, according to the Associated Press, was able to defeat “Pentagon security systems using little more than a Lady Gaga CD and a portable computer memory stick.”
Manning apparently sent the information to Wikileaks – a non profit media organization, which specializes in publishing leaked information. Wikileaks in turn shared the documents to other media around the world including the New York Times and published much of it on its website.
Despite criminal investigations by the US and other governments, it is not clear that media organizations like Wikileaks can be prosecuted in the US in light of First Amendment. Recall that the First Amendment says: “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or of the right of the people peaceably to assemble, and to petition the government for a redress of grievances.”
Outraged politicians are claiming that the release of government information is the criminal equivalent of terrorism and puts innocent people’s lives at risk. Many of those same politicians authorized the modern equivalent of carpet bombing of Baghdad and other Iraqi cities, the sacrifice of thousands of lives of soldiers and civilians, and drone assaults on civilian areas in Afghanistan, Pakistan and Yemen. Their anger at a document dump, no matter how extensive, is more than a little suspect.
Everyone, including Wikileaks and the other media reporting the documents, hopes that no lives will be lost because of this. So far, that appears to be the case as McClatchey Newspapers reported November 28, 2010, that ‘US officials conceded that they have no evidence to date that the [prior] release of documents led to anyone’s death.”
The US has been going in the wrong direction for years by classifying millions of documents as secrets. Wikileaks and other media which report these so called secrets will embarrass people yes. Wikileaks and other media will make leaders uncomfortable yes. But embarrassment and discomfort are small prices to pay for a healthier democracy.
Wikileaks has the potential to make transparency and accountability more robust in the US. That is good for democracy.

(Reuters) - Bank of America Corp's shares declined 3 percent on Tuesday amid investor fears the largest U.S. bank by assets may be at the center of WikiLeaks next document release.

On Monday, Julian Assange, founder of the WikiLeaks, said his group plans to release tens of thousands of internal documents from a major U.S. bank early next year, according to an interview posted online by Forbes Magazine.

He declined to identify to Forbes which bank would be the subject of the release, but expected the leak to spawn investigations.

The statement came just one day after Assange's group released 250,000 U.S. government diplomatic and military documents on November 28, and analysts said the timing spooked investors.

BofA's share price "continues to be driven by sentiment and not hard numbers," said Dick Bove, bank analyst with Rochdale Securities in a research note to clients.

In an October 9, 2009 interview, Assange told Computerworld that the group had obtained five gigabytes of data from a Bank of America executive's hard drive.

"Now how do we present that? It's a difficult problem. We could just dump it all into one giant Zip file, but we know for a fact that has limited impact. To have impact, it needs to be easy for people to dive in and search it and get something out of it," Assange told Computerworld.

Mark Stephens, a London lawyer who represents Assange, said that Assange could not be immediately reached for comment on whether the bank documents he told Forbes about were the same Bank of America documents he talked to Computerworld about just over a year ago.

A Bank of America spokeswoman said the bank is aware of WikiLeaks' claims that it has company data, but said it has not been contacted by the group or seen proof it possesses any of the bank's information.

Bove said in his note to clients that he rates Bank of America's stock as a buy and "considerably undervalued."

Bove said many of the bank's problems from the financial crisis have been sorted through, and once investor fears subside, BofA's share price will rise.

U.S. authorities are conducting an intensive criminal investigation into WikiLeaks release of government documents.

The U.S. State Department said on Tuesday it had cut off a U.S. military computer network from its database of diplomatic cables.

WikiLeaks says it is a nonprofit organization funded by human rights campaigners, journalists and the general public. Launched in 2006, it promotes the leaking of information to fight government and corporate corruption.

Previously, WikiLeaks had made public nearly 500,000 classified U.S. files on the wars in Iraq and Afghanistan.

(Reuters) - North and South Korea exchanged artillery fire on November 23, triggered when Pyongyang's military launched 170 rounds in and around a South Korean island near disputed sea border.

The incident, which killed two civilians and two Marines, was the worst clash involving non-military personnel since the downing of a Korean Air passenger jet in 1987 by a pair of North Korean agents that killed more than 100.

It marked a sharp escalation of tension between the rivals, punctuating a series of conciliatory moves in recent months that appeared headed for renewal of dialogue, after ties sank to their lowest point in years when a South Korean navy ship was torpedoed in March, killing 46 sailors.

North Korea is entering what could be a lengthy period of leadership transition fraught with uncertainty, after Kim Jong-il's youngest son surfaced in September as heir apparent, which could push the risks to South Korean asset prices upwards.

Following is a summary of key South Korea risks to watch:

TENSIONS BETWEEN RIVAL KOREAS

North Korea did what had been almost the unthinkable: struck at a South Korean civilian area. The attack dramatically raised the risk level for the Korean peninsula and across north Asia, which accounts for one-sixth of the global economy.

The incident was a reminder that the North could lob thousands of artillery rounds into more populated and developed areas of the South, including the dense capital region of Seoul, home to about half of the country's population, and fire missiles at cities in the South and in Japan, causing crippling economic damage.

Analysts still believe war is unlikely. North Korea's obsolete conventional armed forces and military equipment mean quick and near certain defeat if it wages full-scale war, and Pyongyang is well aware of its limitations.

Even though it has exploded nuclear devices, North Korea has not shown it has a working nuclear bomb. Experts say they do not believe the North has the ability to miniaturize an atomic weapon to place on a missile.

South Korean President Lee Myung-bak has ordered a review of the military's rules of engagement to strengthen response to any attack by North Korea, especially against civilian areas. It will also consider reinforcing military assets and troops on the islands that lie close to the disputed sea border with the North, the scene of fatal naval clashes in previous years.

What to watch:

-- Further aggression by the North. Artillery shots were heard from a South Korean island three days after the attack, a reminder to the few residents who have chosen to remain there that rounds can start raining down on them any time.

-- South Korean and U.S. forces staged military exercises on November 28 to December 1 amid fiery criticism by the North that the maneuvers were war preparations in disguise.

-- Impact on the South Korea won, stocks and bonds. Markets had become relatively immune to saber-rattling by Pyongyang but in the current climate of heightened tension they are more sensitive to geopolitical tensions.

TUESDAY, NOVEMBER 30, 2010

The Eurozone is heading for a crash—anyone saying otherwise is either stoned, works in Brussels, or hasn’t checked the European bond market action lately: All hell is breaking loose there.

The Euro:
A famed, flightless bird, now extinct.

And if, as I have argued here, the Irish Parliament decides not to pass the austerity budget next December 7—that is, decides not to take the European Central Bank bailout—then hell is going to break out in Europe just in time for Christmas: Satan and Santa Claus just might be squaring off on the Rue Belliard before year’s end.

"It could happen almost any time now. We now have the technological capability to identify Earth-like planets around the smallest stars."

David Latham -Harvard-Smithsonian Center for Astrophysics

Last week a 21st-century miles was reached: Planet hunters discovered the 500th planet beyond our solar system. To be sure, the vast majority are hot, Jupiter-sized planets that would dwarf the Earth and are almost certainly lifeless. Over the past 15 years, the count of these extrasolar worlds, has soared from single digits to the dozens and then into the hundreds. The pace of discovery is now so rapid that the number of identified planets leaped from 400 to 500 entries in just over a year.

Summary

US diplomats meet David Miliband and Foreign Office officials to discuss concerns about nuclear proliferation around the world and progress towards Obama's stated goal of arms control and disarmament. They discuss China's efforts to build a nuclear arsenal, and highlight concerns about the Pakistan's nuclear weapons. Recent intelligence suggests that Pakistan 'is not going in the right direction', the meeting hears. Key passage highlighted in yellow.

1. (S/NF) Summary: Under Secretary Tauscher held meetings in London on September 2-4 on the margins of the P5 Conference on Confidence Building Measures Towards Nuclear Disarmament with Foreign Secretary David Miliband, Simon McDonald, Head of the Foreign and Defence PolicySecretariat at the Cabinet Office, Mariot Leslie, Director General, Defence and Intelligence, Foreign and Commonwealth Office (FCO), and Jon Day, MOD Director General for Security Policy. The UK interlocutors expressed broad support for USG goals with regard to nonproliferation and disarmament and highlighted the need for close P3 and P5 coordination in the lead-up to the UNSC Heads of Goverment Summit and the Nuclear Nonproliferation Treaty (NPT) Review Confererence (RevCon). They also predicted that UK arms control policy would not be affected either by next year's elections or the upcoming Strategic Defense Review. McDonald cited the need to get tough with Iran if it did not respond to overtures by the end of September. U/S Tauscher expressed continued commitment to ratification of the Defense Trade Treaty and noted that she is working with the Senate to resolve questions concerning implementation. End Summary

By Matthew CardinaleATLANTA, Georgia, Nov 29, 2010 (IPS) - The private central bank of the United States, the Federal Reserve, has begun purchasing $600 billion of long-term U.S. Treasury Bonds, essentially subsidising the federal deficit for the year.

Many economists say the significance of this new role for the Federal Reserve cannot be overstated, especially because the agency is literally creating money at the stroke of a keyboard.

The practice is called Quantitative Easing 2 or QE2 - "quantitative" because the Federal Reserve is changing the quantity of money in the economy, and "easing" because it is easing the pressures of the market.

The vast majority of all money in the U.S. economy is created already, when private banks issue loans to individuals.

IPS has previously reported on how, through a little-known practice called fractional reserve lending, private banks create new money when they issue loans, although how much new money they are allowed to create is regulated.

This means, when private banks create money, it is not being taken from somewhere and then loaned to someone else; it is instead being conjured into existence.

This also means that private banks control how much money is in the total money supply of the U.S. economy at any given time.

Enter the Federal Reserve

It should not be terribly surprising the Federal Reserve is creating money; this power rests with the U.S. government, although the U.S. has not created money since President Abraham Lincoln printed all the money needed to win the U.S. Civil War against the South.

Economist Ellen Brown explained the mechanics of QE2 to IPS. The U.S. Treasury typically sells bonds, or interest-bearing promises to pay, at an auction, to primary dealers like Goldman Sachs. The dealers sell the bonds to others, including foreign governments like China, although China has recently stopped purchasing new U.S. bonds.

In QE2, the Federal Reserve is buying the bonds from Goldman Sachs with money it literally created. However, instead of profiting off of the interest from the bonds, the Federal Reserve refunds all of its proceeds into the U.S. Treasury. Therefore, the Federal Reserve is financing the U.S. deficit almost interest-free.

Brown argues this is a good thing and even suggests that over time the Federal Reserve could purchase all of the U.S. debt.

"What it [QE2] is doing, why we have to have it, is, we can't afford to pay any more interest on the federal debt. Half of our personal income taxes go to pay interest on the federal debt," Brown said.

"The government is perfectly capable of printing its own money. Ideally, the government itself would issue the money, but what we have is the central bank issuing money to the government interest-free," she said.

"What people don't realise is all money is borrowed into existence. The loans have collapsed. When the loans collapse the money isn't out there and that's why we have a Depression. The credit system has collapsed, the pitcher doesn't have anything in it," she said.

"People are complaining about inflation but what we have is deflation. When old loans get paid off and new loans aren't issued, money is destroyed. Fifteen trillion has disappeared from real wealth. So we need to fill that bucket back up before we can get to inflation," Brown said.

The first quantitative easing by the Federal Reserve, QE1, took place last year. The Federal Reserve bought 1.2 trillion dollars in toxic mortgage-backed securities from private banks.

"If QE1 had any positive impact, it allowed banks to unload some of their toxic waste... it strengthened their balance sheet a little bit, but to really help the banks you'd have to buy trillions in bad assets," said Randall Wray, a professor of economics at the University of Missouri-Kansas City.

Wray argues there is no need for the government to issue bonds, because the bonds are circuitous. In fact, Wray argues, when one understands how the government issues money, the whole idea of a deficit is a myth.

"The way the government spends is through keystrokes. It credits bank accounts," Wray said. "A sovereign government, the U.S., is the issuer of the currency. It's impossible for the U.S. to borrow dollars. You can't borrow IOU's from yourself."

"Really it is religion. Economists figured it out in the 1960s - the way the government spends is by crediting bank accounts. But if the public understood this, they would demand more services. We need the myth [of deficits and the need to balance budgets through borrowing]. They're just really scared to death people will find out," Wray said.

"There is no financial limit on the government. There's real limits, there's inflation limits, there should be budgets," Wray said.

Japan, over the last 20 years, had its own quantitative easing programme.

"In Japan they did a lot of this, over the last 20 years, they did monetise the debt," said Mark Weisbrot, co-director of the Center for Economic and Policy Research. "They didn't get any inflation out of that at all, five percent total inflation over 20 years. That indicates they could have done and should have done - monetised a lot more."

"We have two competing systems. The European Union is doing the austerity thing- they have a fixed amount of money and they're gonna make do. That system won't work- it won't work with Greece, Ireland, Spain, Portugal. They're gonna have to let more money into the system," Brown said.

"The Japanese have been doing QE for some time, they're still the third largest economy in the world. For a small island, they're not doing that bad. They have a big debt, but it doesn't hurt anything in terms of productivity. Half of that debt is owned by their central bank."

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